3 - 6 minute read
Two Texas lawmakers have introduced a pair of bills for the creation of a state-based digital currency backed by gold, a move that comes in spite of objections from several United States lawmakers against the introduction of a central bank digital currency (CBDC) backed by the U.S. dollar.
Senator Bryan Hughes introduced the Senate Bill 2334 on March 10, along with state Representative Mark Dorazio introducing the House Bill 4903 on the same day, stating that the digital currency would be backed by a fractional equivalent amount of physical gold.
A Digital Currency Backed by Gold
According to the bills, the proposed digital currency would be backed by a fractional equivalent amount of physical gold. “Each unit of the digital currency issued represents a particular fraction of a troy ounce of gold held in trust.” It was explained that once a person purchases a certain amount of digital currency, the comptroller would use that money received to buy an equivalent amount of gold. The purchaser would then receive digital currency equal to the amount of gold that the comptroller purchases with the money received from the purchaser.
It was emphasized that the value of a unit of the digital currency must be equal to the value of the appropriate fraction of a troy ounce of gold at the time of the transaction. “The trustee shall maintain enough gold to provide for the redemption in gold of all units of the digital currency that have been issued and are not yet redeemed for money or gold,” the bill also stated.
Text of one of the bills. Source: capitol.texas.gov
Effect of the Bill
Although neither of the bills have been passed or presented for a vote, both stated that this act will take effect on September 1, 2023. The proposed gold-backed digital currency is among the first bills of this nature, and if passed, would set a precedent for other states to follow.
As cryptocurrencies gain more traction in the mainstream financial system, investors are constantly seeking out new opportunities. With the introduction of gold-backed digital currency, traders should expect an added level of security and stability, which can alleviate uncertainty surrounding market volatility.
Several United States lawmakers have argued against the U.S introducing a US-backed CBDC in recent times. Florida Governor Ron DeSantis stated in a March 20 press conference that CBDC’s would grant “more power” to the government, adding that it provides the government “with a direct view of all consumer activities.” Meanwhile, on March 21, Republican Senator Ted Cruz introduced a bill to block the Fed from launching a “direct-to-consumer” CBDC, stating that it’s “more important than ever” to ensure U.S. policy on digital currencies protects “financial privacy, maintains the dollar’s dominance and cultivates innovation.”
The idea of a gold-backed digital currency is not new, and it has been suggested by several cryptocurrency enthusiasts in recent years. Texas lawmakers have taken a significant step towards this vision by proposing a bill that could make gold-backed digital currency a reality. Although the proposed bill has not yet been passed, it shows how the U.S. is actively exploring ways of fully integrating cryptocurrencies into the mainstream financial system. Meanwhile, traders should examine this development critically and consider how investing in gold-backed digital currency could be a valuable addition to their portfolios.